Barclays Sets Aside $1.13 Billion More for PPI Compensation

Barclays Plc (BARC) will set aside an
additional 700 million pounds ($1.13 billion) to compensate
clients wrongly sold payment-protection insurance, weeks after
former consumer banking head Antony Jenkins became chief
executive officer.

The provision is on top of the 300 million-pound charge
Britain’s second-largest bank took in the first quarter, the
London-based Barclays said today in a statement.

“If I were Antony Jenkins, I would not want this noise in
the final quarter,” said Christopher Wheeler, a London-based
analyst at Mediobanca SpA. Taking the charge now will mean there
will be less to distract investors when the bank unveils its
strategic plan in February, he said.

U.K. banks may have to increase provisions on top of at
least 9 billion pounds charged to redress claims related to the
insurance sold with home loans and other credit. Lloyds Banking
Group Plc (LLOY), Britain’s biggest mortgage lender, has set aside 4.3
billion pounds to redress customers sold PPI. Its CEO, Antonio Horta-Osorio, in July blamed so-called claims-management
companies, which help individuals pursue cases against firms for
a fee or percentage of any successful award, for inflating the
costs.

Ombudsman Complaints

The Financial Ombudsman Service, Britain’s financial
adjudicator, said it received about 19,800 PPI-related
complaints from Barclays clients in the six months to June 30.
The ombudsman received about 20,200 PPI complaints about Lloyds
in the period, about 3,800 for Royal Bank of Scotland Group Plc
and about 7,700 for HSBC Holdings Plc.

“Based on claims experience to date and anticipated future
volumes, the resulting provision includes Barclays’s best
estimate of expected costs of future PPI redress,” the bank
said.

Today’s charge brings the total Barclays has set aside to
compensate customers who were sold the insurance on loans
unnecessarily or without their knowledge to 2 billion pounds.
RBS (RBS) has set aside 1.3 billion pounds and HSBC Holdings Plc (HSBA) about
1.1 billion pounds.

Lloyds may have to increase its provision by as much as 2.3
billion pounds, Ian Gordon, a London-based analyst at Investec
Plc (INVP), estimated in a note to clients today.

“We doubt it will be that bad, but we expect it to hurt,”
he wrote in the note. Barclays and Lloyds each paid out 69
percent of their provisions at June 30, Gordon estimates,
meaning the two banks “held the least conservative levels of
provisioning against ongoing PPI claims.”

Firm’s Values

Barclays’s pretax profit for the third quarter, excluding
the PPI provision and a charge of 1.1 billion pounds of swings
in the value of its own debt, will still be in line with
analysts estimates of about 1.7 billion pounds, Barclays said.
The bank is scheduled to report third-quarter earnings on Oct.
31.

Jenkins said last month that employee performance will be
measured against the firm’s values as well as financial
achievement as part a plan to overhaul the bank’s culture
following a number of banking scandals. Incentive programs are
likely to encourage employees to mis-sell to meet targets and
receive bonuses, the Financial Services Authority said,
following a study of 22 firms.

Barclays in September was also criticized by lawmakers for
being slow to redress customers mis-sold interest-rate hedging
products after setting aside 450 million pounds for complaints.

Jenkins succeeded Robert Diamond in August after the bank
was fined a record 290 million pounds by U.S. and U.K.
regulators for manipulating the London interbank offered rate, a
benchmark for more than $300 trillion of securities.

The shares fell 3.7 pence, or 1.5 percent, to 240.7 pence
in London trading.